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BASF continues to advance projects such as a catalytic process to make olefins from syngas, shown here, despite the prospect that COVID-19 could reduce financial incentives for low-carbon technologies.

Another silver lining is that worldwide carbon emissions are on track to fall 14% this year. With chemical production also falling across the industrial world, it would appear that chemical firms and others seeking to slash greenhouse gas emissions will be able to meet their targets more readily.

The opposite, however, may transpire, and any short-term gains could turn into losses, a growing chorus of experts says. Chemical companies with ambitious carbon-reduction goals—particularly companies in Europe—face a steep uphill climb.

Three factors conspire against chemical makers and other industrial firms that want to cut carbon emissions. First, companies financially harmed by COVID-19 are now under pressure to cut capital expenditures on projects, including those to reduce greenhouse emissions. Second, with oil and gas prices depressed, switching to renewable energy—a tool widely used by chemical firms to reduce carbon emissions—has lost some of its appeal. And a drop in the price of carbon traded on Europe’s Emissions Trading System (ETS) means that European chemical firms in particular reap less financial reward for using low-carbon technology.

Capital spending cuts are showing up already at chemical companies that are reporting a drop in first-quarter financial performance and forecasting further falls ahead. This is also the case for oil and gas firms, which have become key funders of low-carbon projects, says Runeel Daliah, an analyst with Lux Research. “The current crisis is making oil and gas firms less risk prone. It will have a negative impact on the low-carbon transition,” Daliah says.

An example is the Swedish energy firm Vattenfall, which in early April withdrew its plan to participate in a wind farm in the North Sea, citing the COVID-19 pandemic.

Daliah says it’s also likely that some large-scale electrolysis projects for making green hydrogen will be pushed back a few years. In contrast, global carbon emissions will return to their pre-COVID-19 trajectory rapidly, according to a report by Climate Action Tracker, an independent organization that tracks government climate action.

Daliah’s concerns are echoed by the European Chemical Industry Council (Cefic), Europe’s leading chemical industry association. “We can’t quantify the impact now, as the crisis is not over yet, but if companies continue losing revenue because of the overall decline in manufacturing activity, their ability to invest in technologies to further reduce emissions is likely to be affected,” says Cefic’s director general, Marco Mensink.

The second challenge is that the fall in oil and gas prices due to a huge drop in fuel demand has wiped out any financial benefits for chemical companies to switch to renewable energy. “It is certainly leading to additional cost,” says Martin Babilas, CEO of the German specialty chemical firm Altana, which in 2019 stated its intention to become the first chemical company to be carbon neutral for production and operations by 2025.

Babilas, though, says he is resisting financial pressure to continue using fossil fuel energy sources. Acting on past pledges, the CEO recently completed switching all of Altana’s power supply from fossil fuels to renewable energy, eliminating about 90,000 metric tons (t) of annual CO2 emissions. This represents about half of Altana’s total emissions from chemical production and energy consumption.

“We would not have our actions influenced by market price fluctuations that might be short term,” Babilas says.

DSM, consistently recognized by the Dow Jones Sustainability Indices as a leading sustainability performer, also says its emission-reduction goals will not change as a result of what it perceives to be short-term price movements caused by COVID-19. In recent days, DSM disclosed two renewable energy sourcing agreements that put the Dutch firm on course to get 75% of its electricity from renewable sources by 2030. “DSM looks at the long-term economics of these power-purchase agreements,” the firm tells C&EN.

The third challenge, which affects in particular large European chemical producers that aim to substantially reduce carbon emissions, is that the slowdown in industrial production has depressed the price of carbon credits traded on the ETS. After the arrival of COVID-19 in Europe, the price of carbon emissions on the exchange—which major industrial firms must participate in—fell from about €25 (about $27) to €15 before stabilizing at just under €20.

Companies participating in the ETS receive or buy carbon emission credits to cover the amount of CO2 they emit. If a company reduces emissions, it can sell any excess credits, but if it creates more CO2 than its permitted quota, it must purchase credits to offset the emissions. The lower the price of credits, the less incentive a firm has to curb emissions.

“The problem is that you need €40–€50 to really start implementing CO2 emission-reduction projects,” says Nico Girod, managing director of markets at the carbon market consulting firm ClearBlue Markets. In the near term, Girod expects an excess of 250 million t of emission credits in the ETS, about 15% of the total traded. “It’s a bit of an issue,” he says.

The situation is squeezing chemical companies such as BASF that seek to make deep emission cuts. BASF’s goal is to stop increasing CO2 emissions, even though it expects to raise chemical production by up to 50% through 2030. The German firm had been grumbling about the €25 carbon price back in January 2019 when it announced its carbon emission target.

Without a higher carbon price or a subsidy, BASF might be unwilling to roll out low-carbon technologies, such as a catalytic process for making the superabsorbent polymer sodium polyacrylate from waste CO2. The company makes about 600,000 t of the polymer.

A second drop in the price of ETS credits could be on the horizon as the declining price of oil and gas causes European operators of coal-fired power plants to run them less often. This change is set to create an additional wave of credits that will flood the ETS, according to Sam Van den plas, policy director for Carbon Market Watch, a nonprofit organization encouraging a transition to a zero-carbon society. “We could expect another crash in the price of carbon,” he says.

Chemical companies that are higher polluters will benefit from the low price of oil and gas since their exposure to the ETS carbon price is reduced and they are entitled to keep—or sell—all surplus emission allowances allocated to them, Van den plas says. “It is definitely not business as normal, and some polluters are even making windfall profits,” he adds.

Another cloud on the horizon for European companies seeking to slash their carbon emissions is that less money will now be going into the European Union’s ETS Innovation Fund, a €450 million cash pot generated by auctioning allowances. Much of this money is directed to clean technology projects.

While cutting carbon emissions will be trickier than it was before the pandemic, European companies could also soon be asked to cut emissions more deeply. The European Commission (EC) in recent days unveiled a new target to cut the EU’s emissions by at least 50% by 2030, up from its current target of 40%. Industry will be called upon to deliver a portion of these cuts.

A potential lifeline for European firms is that the EC is considering a post-COVID-19 economic rescue package for manufacturers that’s tied to carbon emission reduction. “That is what I hear from our clients,” Girod says, though details are scarce.

A slew of new reports from policy groups highlights the importance of such a strategy. “The question of how the economic recovery is designed remains crucial in shaping the long-term pathways for emissions and determining whether the Paris Agreement’s 1.5°C temperature limit can be achieved,” the authors of a report for Climate Action Tracker state.

But some economists, including Christian de Perthuis, associate professor of economics at Paris Dauphine University, are pessimistic about whether governments will make enough green stimulus money available. “The emphasis on reviving the economy risks taking over the entire realm of policy, to the detriment of governments’ climate concerns,” he warns in a recent report.

There could still be a lasting low-carbon silver lining that emerges after COVID-19, but only with a surge in government spending. Without it, chemical firms that are serious about cutting carbon emissions may find they are on an uphill climb with little reward at the top.